Technology share view

With hindsight, the straw that might have broken the camel's back could have been Lastminute.com. Its shares were floated at 380p in March but today trade at 210p. For the 180,000 investors offered a meagre 35 shares in the public offering that this has not been a pleasant experience.

With two photogenic, youthful and annoyingly posh founders, this float was pure hype. Lastminute sells tickets for flights, hotel reservations or restaurant tables for those seeking a cheap, last minute booking. It is the classic Business-to-Consumer (B2C) stock- a sub-sector to avoid.

For not only does Lastminute have no possession of its content, but there are no real barriers to entry. Thus, British Airways recently joined up with a number of other airlines to sell their unsold stock directly to Lastminute bargain hunters over the net. And a number of big London restaurant chains currently using Lastminute are known to be planning their own operations. In short, B2C middlemen face a squeeze unless they own their content.

B2C suppliers also face an uphill battle to persuade a conservative public to use their services. Over the past six months Lastminute has spent 7.2 million [pounds sterling] on advertising. Thanks to that - and to the appalling publicity surrounding its flotation - it has high (46 per cent) UK brand recognition, but its last quarterly loss was 11 million [pounds sterling]. Supporters expect profits within four years. I am not so sure.

But in the Business-to-Business (B2B) market some companies are supplying product that is already generating profits and cashflow. Northgate Information Solutions is one such company. Known until recently as MDIS (a company with a poor track record), Northgate has recruited an impressive management team since last autumn and thus, in the midst of the recent tech shakeout, it was able to complete a fund raising at 46p, which was almost 90 per cent taken up. That is impressive.

MDIS supplies integrated software packages to a raft of public sector clients but is increasingly moving into the private sector. Among recent big wins is one from Lastminute.com, which needed a reworking of its entire software system. The company's chief executive, Chris Stone, has said that he could be making a pre-tax profit of 16 million [pounds sterling] within two years. Yet at 47p the firm is capitalised at little more than 120 million [pounds sterling]. A growth stock on an April 2002 price/earnings ratio of less than 8? Every correction throws up some great opportunities.

COPYRIGHT 2000 Vitesse Media
COPYRIGHT 2008 Gale, Cengage Learning